Editor's note: A market rally doesn't end just because it has hit new highs...

You might think that once a stock has broken out it has nowhere left to go but down. But that's not always the case. If a company has strong drivers behind it, it can continue to soar for a long time.

In today's Masters Series, Joel Litman – chief investment officer at our corporate affiliate Altimetry – explains why strong companies don't have to run out of steam anytime soon...

The Breakout Stocks That Will Remain 'In Motion'

By Joel Litman, chief investment officer, Altimetry

All it took was two 20-foot wooden beams and some polished animal skin to throw the world into chaos.

It was the mid-1630s, and Galileo Galilei was restless. He had run afoul of the Inquisition for his claims that the sun was the center of the solar system. His teachings had earned him a life sentence under house arrest.

The Inquisition had limited Galileo's movement. But it hadn't stopped his mind. And he was deep in the trenches, determined to disprove history's first scientist...

Since the days of Aristotle, it was widely accepted that an object's natural state was "at rest." Said another way, unless an object was being pushed, Aristotle believed it would tend to stand still.

But Galileo disagreed. Instead, he believed an object would keep doing whatever it was already doing unless another force acted on it.

To test his theory, he built a series of ramps lined with parchment to reduce friction. First, he set up one decline ramp next to an incline ramp. He pushed a ball down the former... and watched it roll right back up the latter.

Then he refined his experiment with a curved ramp. The same thing happened – the ball rolled to the bottom of the track... and, absent anything to stop it, rolled right back up the other side.

It seems obvious in the modern world. But Galileo had just disproved 2,000 years of beliefs with one simple observation...

An object at rest will remain at rest, and an object in motion will remain in motion, unless acted on by an outside force.

Today, we call this "inertia" – the first law of motion. Galileo didn't formally describe it himself. That job went to Isaac Newton a few decades later, in 1687.

But it all started with a bored scientist on house arrest and a few wooden ramps.

Inertia goes hand in hand with another phenomenon... momentum, or the act of building up speed.

Momentum exists everywhere. It's not just for balls rolling down a hill. Viral memes gain momentum on social media. Politicians worry about losing (or gaining) momentum in the polls.

And for investors, momentum is one of the most powerful forces in the market.

Market researchers have been studying stock momentum for decades. They've found that a stock's past performance is one of the best indicators of future performance.

And if you add in strong, growing profits... you've got a recipe for success.

The idea behind momentum is simple. Stocks that have risen already are more likely to keep rising going forward.

It seems simple enough. But at one point, it was absurd. Past performance couldn't possibly explain future stock performance.

That would imply the market wasn't efficient. Investors would have been ignoring obvious, easy-to-access data.

In fact, even Nobel Prize-winning economist and University of Chicago professor Eugene Fama flat-out refused to acknowledge momentum at all...

That is, until Cliff Asness – one of his doctoral students and teaching assistants – made him wade through the data.

Asness' 1994 doctoral dissertation was all about momentum. He found that tracking an asset's past performance could explain a lot about where it would go in the future.

As Asness likes to say, Fama was supportive of the research. But he didn't like the result.

Asness combined his momentum research with factors created by Fama and fellow University of Chicago professor Kenneth French... building an entire business around them called AQR. (It currently boasts $187 billion in assets under management.) He's one of the most respected voices on factor investing in the market today.

Unfortunately for Fama, momentum's influence has only gotten stronger.

We don't want to follow Fama's lead here. Instead, we can lean into a trend and ride the best stocks that have already produced impressive results as they continue to outperform.

Regards,

Joel Litman

Editor's note: Despite the recent sell-off and inflation woes, the major indexes are holding strong... while individual stocks lag behind. This performance gap could widen even further at the Federal Reserve's upcoming meeting – and your portfolio could be at stake.

But Joel isn't surprised by this. In fact, he and Stansberry Research editor Brett Eversole are teaming up to provide you with the resources to navigate the turmoil. Using their unique proprietary systems, they've found stocks with the momentum needed to continue rising... in the markets set to benefit from today's environment.

Before the Fed makes its move, learn how you can prepare for the upcoming turmoil and see Joel and Brett's "Perfect Breakout" system in action here.